Vista eyes ‘multiple pathways for value creation’ for KnowBe4; PE firms invest in HR tech

Good morning dealmakers, thank goodness it’s Friday!

It’s Obey Martin Manayiti here with the newsletter.

I’m focusing on cybersecurity and tech deals today, first with a Q&A that I had with Michael Fosnaugh, senior managing director at Vista Equity Partners, who details the firm’s plans for KnowBe4, a cybersecurity training company the tech-focused PE firm recently took private for $4.6 billion.

To cap things off, we’ll look at five HR tech deals rounded up by my colleague, Georgina Tzanetos. The targets aim to simplify work for human resources folks in different sectors.

But first, let’s look at the morning’s deal announcements.

Fresche Solutions, an IT company backed by American Pacific Group, a Larkspur, California PE firm, announced this morning the acquisition of Silveredge Consulting, another IT consulting services provider. Fresche is based in Montreal, Canada; while Silveredge is headquartered in Westchester, Illinois.

Integreon, a cybersecurity firm with multiple global offices that is owned by New York headquartered EagleTree Capital, just announced the development of CyberHawk-AI, an advanced automated technology designed to streamline extracting and analyzing sensitive data following cyber breaches.
Integreon also announced that it is partnering with RadarFirst, a Portland, Oregon based privacy incident management company.

“With the integration of RadarFirst, Integreon automatically uploads the Consolidated Entity List and enters information about the breach into RadarFirst’s SaaS software, and based on jurisdictional notification requirements, the platform highlights and creates a notification prioritization,” read the press statement on how the partnership will operate.

New York based Welsh, Carson, Anderson & Stowe invested in ImageTrend, a Lakeville, Minnesota software provider in the public safety and healthcare communities. The investment seeks to help ImageTrend accelerate growth.

Cybersecurity: Earlier in February, Vista closed its previously announced buyout of cybersecurity awareness training provider KnowBe4 in an all-cash transaction valued at $4.6 billion.

To discover more about the tech-focused PE firm’s plans for the company in particular and cybersecurity investing in general, I spoke with Michael Fosnaugh, senior managing director and co-head of Vista’s flagship fund.

How does the KnowBe4 acquisition represent Vista’s investment thesis?
According to third-party research, over 80 percent of all security breaches are caused by human error. Recognizing this, bad actors are increasingly targeting employees through a process known as “social engineering” or “phishing” attacks using deceptive and tailored means to gain unauthorized access to internal systems.

Despite the prevalence of these threats, most traditional cybersecurity tools cannot protect or help organizations to prepare for these risks. This layer of human vulnerability has also historically been an area of underinvestment for cybersecurity and IT leaders, despite its clear mission-criticality and frequency as an attack vector.

That’s why we are so excited about KnowBe4, which is a company that focuses solely on protecting customers against these social engineering attacks through a core training and testing platform which helps create organizational cultures of vigilance. KnowBe4 has emerged as a clear leader and pioneer in security tools that address the ever-important human variable of cybersecurity.

How do you expect to grow the company?
We believe KnowBe4 possesses outstanding fundamental growth drivers. KnowBe4 delivers a best-in-class solution in a large, fast-growing and extremely underpenetrated space. The company has also developed a number of add-on products that enhance its core platform to allow security teams to more easily manage and automate responses to social engineering and phishing threats across their organization.

Finally, KnowBe4 has a strong leadership team headed up by its founder and CEO, Stu Sjouwerman, with a demonstrated track record of marrying strong vision and execution, which has translated into the business’s excellent financial profile.

What’s the ultimate exit plan for KnowBe4?
Our focus right now is continuing the company’s profitable growth and scaling the business efficiently. We first invested in KnowBe4 in 2021 and since then, we have been consistently impressed by their ability to drive disciplined and profitable growth both organically and inorganically.

Given the importance and increased demand for KnowBe4’s market-leading cybersecurity solutions, the company’s diverse, loyal and sizable customer base, and its strong mix of growth and profitability, we see multiple pathways for value creation that can drive this next phase of growth at scale.

Problem Solving: HR tech is suddenly on everyone’s minds, and private equity firms have noticed. Human resource departments have had their hands full the last few years, thanks to the pandemic. Work from home, hybrid work, return to office – it’s all made managing employees more difficult than ever before. There’s been one saving grace, however, and that’s technology, Georgina reports.

She covered five HR tech deals announced over the last six months.

Here are details on two of them:
LLR Partners, a lower-mid-market private equity firm based in Philadelphia, acquired post-acute healthcare human resources company Viventium in a deal for undisclosed terms that was announced in February but closed in January.

Post-acute healthcare encompasses home-care agencies, skilled nursing facilities, hospices and in-patient rehabilitation services, to name a few. The sector is rife with human capital management challenges that Viventium’s software helps to mitigate, LLR partner Sasank Aleti explained in an interview with PE Hub.

Employee turnover in those markets can be sometimes upwards of 50 percent, Aleti said. “In order for those businesses to operate, they need nurses and care workers to get into the facilities, and that high turnover makes things very difficult to serve their patients if they don’t have their people,” Aleti said.

Also in January, Public Pension Capital made an investment in Michigan-based education staffing company Edustaff, with Monroe Capital providing transaction financing. The company provides teachers and educators to K-12 school districts and community colleges throughout the country. Edustaff currently serves over 550 customers across 11 states. Public Pension Capital is based in New York.

“At a time when schools’ challenges to staff their classrooms have never been greater, we’re excited to partner with Edustaff for the next stage of the company’s journey, and harness its excellent record of teacher placement and client satisfaction to expand its offering to new states and geographies,” said Tom Uger, partner and head of business and financial services for PPC, in the deal announcement.

Are you ready for some football? I know many of us are looking forward to the Superbowl on Sunday between the Philadelphia Eagles and the Kansas City Chiefs. I will be rooting for the best team. And looking for the best ads.

That’s it for me today. Have a great weekend.

MK Flynn will be back with the Wire on Monday.